Inherited Money in Canada: A Clear Framework

There is no rush

The single most important piece of advice for handling an inheritance is not financial. It is: do not make major financial decisions in the immediate aftermath of a loss. Park the money in a high-interest savings account for 30 to 90 days while you grieve, handle the estate process, and let the emotional intensity settle. No financial opportunity disappears in three months.

This advice applies equally whether the inheritance is $10,000 or $500,000. The investments will still be available when you are ready. The market will have other entry points. Give yourself permission to wait.

Tax on inheritance in Canada

Canada does not have an inheritance tax or estate tax in the way that some countries do. You do not pay tax simply for receiving an inheritance. However, the estate may owe taxes, and certain inherited assets have specific tax treatments worth understanding.

When someone dies in Canada, they are deemed to have disposed of all their assets at fair market value on the date of death. The estate pays any resulting capital gains tax before distributing assets to beneficiaries. By the time you receive an inheritance, the tax due on the growth of those assets has typically already been paid by the estate.

Inherited cash is not taxable income in your hands. Inherited registered accounts (TFSA, RRSP, RRIF) have specific tax rules depending on whether you are a named beneficiary, a spouse, or neither. Inherited investment accounts transferred in-kind may carry an adjusted cost base that affects your future capital gains calculations.

If the inheritance is large or involves registered accounts, a conversation with an accountant or estate lawyer is worth having before investing. The goal is to understand what basis your investments carry and whether there are any remaining tax issues from the estate before making decisions.

High-interest debt first

Before investing any of an inheritance, consider eliminating high-interest debt. Credit card balances at 20% or personal loans at 10% or higher represent guaranteed costs that no investment return can reliably beat net of tax. Eliminating that debt with inherited money is a guaranteed and immediate return equal to the interest rate.

This is not a rule about all debt. A mortgage at 5% does not need to be paid off before investing, particularly if you have significant registered account room available. But consumer debt above 7% to 8% is generally worth eliminating before putting money into XEQT, because the guaranteed return of debt elimination typically exceeds the risk-adjusted expected return of equity investing over the medium term.

Account priority order

Once debt is handled and you are ready to invest, the order of accounts to fill matters. This is the framework most financial planners use for a large lump sum in Canada.

For the detailed logic behind this priority order, see our guide on TFSA vs RRSP for XEQT investors. For estimating your RRSP room from your most recent Notice of Assessment, use the NOA Decoder tool.

Lump sum vs spreading it out

Research consistently shows that investing a lump sum all at once outperforms spreading it over time in roughly two-thirds of historical periods, because markets tend to rise over time and cash waiting to be invested earns less than an invested portfolio. The data favors investing the full amount as soon as you are ready.

The emotional reality is different. For many people, investing a large inherited sum all at once feels terrifying. If the market drops 10% the week after you invest a $100,000 inheritance, you will feel terrible even though you have done nothing wrong. If psychological comfort requires spreading the investment over six months, that is a reasonable choice that will likely cost you some return but preserve your ability to stay invested.

For a detailed analysis of lump sum versus dollar-cost averaging, see our guide on lump sum vs DCA into XEQT. The mathematics of both are laid out clearly with historical context.

Large amounts

For inheritances above roughly $200,000, working with a fee-only financial planner before investing is genuinely worthwhile. The complexity of optimising the investment across registered and non-registered accounts, understanding the tax implications, and ensuring the strategy aligns with your specific goals justifies the planning cost.

A fee-only planner charges for their time (typically $200 to $400 per hour) rather than earning commission on products they recommend. This is the structure that aligns the planner's incentives with yours. They have no reason to recommend anything other than the most suitable products. Many will confirm that a simple XEQT allocation across properly structured accounts is exactly right for your situation.

Using XEQT

XEQT is an excellent vehicle for inherited money that is being invested for the long term. It provides immediate, automatic global diversification at 0.20% MER, requires no ongoing management decisions, and is available commission-free on Wealthsimple. A large inherited sum invested in XEQT inside a properly structured account is a genuinely sound long-term approach.

The key question is not whether to use XEQT but which accounts to fill first and in what order. The account structure matters more than the specific investment choice when amounts are significant. A $200,000 lump sum held entirely in a non-registered account and invested in XEQT will generate taxable income every year that the same amount inside a TFSA and RRSP would not.

For a complete guide to investing a large lump sum in XEQT with account strategy considerations, see I Have $100,000 to Invest: Is XEQT the Answer?

The emotional dimension

An inheritance is not ordinary money. It often arrives during a period of grief and carries emotional weight that pure financial advice cannot address. Some people feel pressure to invest it "correctly" as a form of honoring the person who left it. Others feel survivor guilt about benefiting from a death. Both are normal and worth acknowledging.

The financial decisions can wait a reasonable period while you process the emotional ones. The HISA approach of parking the money temporarily is not just financially sound. It is emotionally sound. You do not need to make permanent investment decisions while grieving. The money will still be there when you are ready.